Goldman provides a brief summary of the ongoing irrelevant EU summit (as discussed yesterday, with Portugal in flux no decision can be enacted for at least two months, or long after Portugal is declared technically insolvent). More important is keeping a track of picking up German regional elections which this weekend include Rhineland-Palantine and Baden Württember. As Dirk Schumacher says: "Although a change in government in BW would have no immediate
consequences for the ruling coalition in Berlin, it would be a heavy
blow in political terms nonetheless."
From Goldman Sachs:
No major surprise from EU summit. Heads of governments will continue their talks today. The news flow over the last 24 hours, however, suggests that the final conclusion will come broadly in line with expectations. EU governments again committed to increase the lending capacity of the EFSF to €440 and "it will be in place in June". We continue to think that the expansion will be achieved through a stepping-up of the guarantees. With respect to the ESM, the main change compared to the agreement reached earlier by finance ministers is a lengthening of the schedule by which countries will need to provide paid-in capital to the mechanism. The first tranche in 2013 will be now €16 billion instead of €40 billion and a further €64 billion will be paid over the following five years. http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/120292.pdf
Two important regional elections this Sunday. There will be elections in two states - Rhineland-Palantine and Baden Württemberg - this Sunday. The election in Baden Württemberg, a traditional stronghold for chancellor Merkel's CDU, is of special importance. According to latest polls, the current ruling coalition of CDU and FDP is clearly trailing behind the two main opposition parties (SPD and Greens). Although a change in government in BW would have no immediate consequences for the ruling coalition in Berlin, it would be a heavy blow in political terms nonetheless.
At the same time, we do not expect the outcome of the elections to have any impact on the upcoming vote in the Bundestag on the expansion of the EFSF and the establishment of the ESM. Despite an occasional hostile rhetoric, MPs know that a rejection of the reformed rescue packages in the Bundestag would send massive shock waves through the system. Moreover, the difficulties of CDU and FDP in Baden Württemberg are not a direct consequence of the help packages. While these are certainly not popular among many voters of CDU and FDP, other issues are dominating the election campaign with nuclear power, not surprisingly, being the most hotly debated topic over the last two weeks.